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CRB spot index more than doubled during 2002-08 (from 212 in May 2002 to 476 in Jun. 2008). It fell drastically afterwards to 311 in Feb. 2009, one of the largest falls over the last 60 year or so. It increased by 17% over 3 months period to May 2009.

Sea freight rates especially that of dry cargos had huge swings. The dry cargo rate index hiked from 95 in Jan. 2002 to 1647 in May 2008, and declined drastically to 90 in Jan. 2008. It bounced back to 255 by May 2009.

Average growth rate of metal raw materials was to varying degrees higher than the previous period. There was a simultaneous growth of quantity and price! But upward shift of growth rate for crude oil consumption was relatively modest!

For some metal material commodities and sea freight rate, the demand growth may a crucial driving force behind the market changes in recent years, bearing in mind that intensity of demand shock differ among sectors!

Since the short run supply curves for the commodities and sea transport were inelastic towards the segment of near full capacity, unexpected demand growth bid up prices and freight rates!

Fed runs the negative real interest rate policy in 2002-2005. Degree of extra-loose monetary policy measured by the negative rate was second only to the late 1970 with the highest inflation in the post-WWII era.

As demonstrated by De Long et al. (1990), if rational speculator’s early buying triggers positive-feedback trading, an increase in the number of forward-looking speculators can increase volatility about fundamentals.

In view of the oligopolistic nature of the market in which a few financial institutions have great influence, it is possible that the unprecedented participation of index investors may have temporarily amplified the move of prices away from the fundamentals.

China steel output increased from 182 million tons to 489 million tons, by 307 million tons during 2002-2007, contributing to 70% of the global growth of steel output (440 million tons) during the period.

Usually dual deficits was inversely related with trend changes of long-term interests and/or CPI in USA, but new pattern of persistent worsening of dual-deficits with relatively low CPI and declining interest rate evolved during 2001-2006.

The dual benign effects of China’s productivity revolution serve as one of the multiple factors shaping this new pattern!

The total estimated welfare lose from worsening TOT during 2003-2008 exceeds 1 trillion RMB, about 10% of total GDP growth during the period. The lose in 2008 was 478.9 billion RMB, about 15% of GDP growth that year!

Non-ferrous sector investment of exploration budgets increased from about $2 billion in 2002 to more than $13 billion in 2008.

In 2005, Saudi Arabia started to implement an ambitious five-year, $129-billion energy investment plan, nearly $60 billion of which will be directed toward increasing upstream petroleum capacity to an estimated 12.5 million bbl/d by 2009.

Appropriate measures of financial regulation may help in reducing the detrimental impacts that excessive financial investment may impose on commodity market.

A recent UNCTAD report: “regulators need access to more comprehensive trading data and make sure the trade is in order …… to ensure that positions on currently unregulated over–the-counter markets do not lead to ‘excessive speculation’”.

Many experts advocate that OTC derivatives trade should be regulated and they should be conducted on the exchange and through central clearing party (CCP).

More stable macro-economic environment with more balanced growth model is helpful to controlling drastic demand hike for imported commodities and avoiding steep segment of short-run marginal cost curve in world market.

To stabilize economy in an growing open environment, reforms are needed to liberalize interest rate, allow for more flexible exchange rate for RMB, introduce the inflation-targeting system, so as to provide new macro-management framework.

In the long run, China has to make the best efforts to find alternative energies so as to gradually substituting for fossil energy.

As China’s per capita stocks of metal materials including steel, aluminum, copper increases, the demand for the new commodities may gradually diminish and approaches the more matured state observed in the developed countries.